Magazine article Journal of Property Management

Do Good by Doing Well: How Green Financing Benefits the 'Triple Bottom Line': Tenants, Investors and the Environment

Magazine article Journal of Property Management

Do Good by Doing Well: How Green Financing Benefits the 'Triple Bottom Line': Tenants, Investors and the Environment

Article excerpt

Sustainability and green initiatives, while good for the environment, are often perceived as more costly than the "old way" of doing things.

But in the case of green financing for multifamily properties, the c financing is actually more affordable than traditional financing. And as more investors are using green financing, they're discovering a surprising number of benefits they hadn't anticipated: better quality assets, lower tenant turnover, fewer tenant complaints and higher cash-flow.

Stratford Partners--a San Diego-based private real estate firm focusing on multifamily properties in the Western U.S. with a portfolio including approximately 3,000 units valued at around S350 million--is a case in point. Mark Hailing, principal and director of portfolio management, said that last year the firm closed two green financing deals.

He called those deals "game changers."

"What initially attracted us was that the terms were better than the standard options," said Hailing. "The interest rate was 20-30 basis points lower, which meant a few hundred thousand dollars more in proceeds," he added.

MULTIPLYING THE BENEFITS

The increase in net proceeds, however, turned out to be just the tip of the iceberg.

"By going through the process, we received a tremendous education on the utility efficiency of our buildings," he said.

Hailing and his partners said they gained expertise that they now apply to all properties in their portfolio. "Once we became educated about the value of green financing, we began tracking utility billing on all of our properties by using an online software, green-space benchmarking tool that evaluates utility expenses and other efficiency projects," said Hailing.

Stratford Partners realized significant utility savings on all the deals across its entire portfolio without incurring significant expense. Hailing reports a 10 to 20 percent reduction in the cost of utilities, which translates into tens of thousands of dollars a year in net income.

WHAT IS GREEN FINANCING?

Fannie Mae offers several different green financing programs for apartment buildings and cooperatives. The financial incentives include a lower interest rate than traditional multifamily for loans with a Green Building Certification, such as LEED or ENERGY STAR[R].

The process of obtaining a Fannie Mae Green Rewards loan is the same as traditional multifamily mortgage financing yet includes a few key additional components. The borrower contacts the lender to acquire or refinance a property. A standard, third-party appraisal and a property inspection is conducted in conjunction with an energy audit. The energy audit reveals opportunities for water and energy savings like switching out faucet heads or dishwashers, upgrading heating or air-conditioning units and more.

There's no additional time or burden to the underwriting and approval process since the energy audit is done concurrently with the other third-party reports. From there, it's up to the borrower to determine which improvements they want to implement.

To be approved, the borrower needs to commit to property improvements that are projected to reduce the whole property's annual energy or water use by at least 20 percent. The money for the selected improvements goes into escrow and the upgrades need to be completed within 12 months of the loan closing. …

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